6.20.12… Tilting at Windmills
By Gary Tanashian
Wednesday, 6 June 2012
On June 20th the Federal Open Market Committee is going conclude a two-day meeting and release a summary of their view of the economy, most likely including an ‘unwelcome’ decline in inflation. That of course would signal a dreaded deflation, which are the windmill ‘giants’ to our Dear (monetary) Leader’s Don Quixote…
“What giants?” asked Sancho Panza.
“Those you see over there,” replied his master, “with their long arms. Some of them have arms well nightwo leagues in length.”
“Take care, sir,” cried Sancho. “Those over there are not giants but windmills. Those things that seem to be their arms are sails which, when they are whirled around by the wind, turn the millstone.”
Lower prices that would result from deflation are considered evil and battle must be done against this evil. An uncomfortable decline in inflation simply will not do in a system dependent on ever-increasing asset prices. The rich (asset owners) must get richer, the poor must get poorer (and more dependent on central authorities) and the middle must be wiped out. That is the implied message in the age of Inflation onDemand.
So on June 20 (if not before), we will see if Friday’s ‘Jobs’ induced counter-broad market explosion in the precious metals was the expected ‘first mover’ event to a coming inflationary policy panic. T Minus 17 days…
The setup is taking shape now. In 2005 I wrote an article called ‘Inflation Hounds’ with the idea that the gold stocks would be the first to sniff out any coming inflationary policy that would result from deflationary phases like the one we are in now.
I do not have mystical answers as to why the gold miners led the big construct down into today’s deflationary fright fest, nor do I know why traders suddenly got ‘smart’ on Friday and bought with both hands in the face of the latest and most compelling deflationary signal, a paltry +69,000 ‘jobs’ report. They were theoretically doing the right thing in buying the sector that depends on economic contraction and the counter cycle for its fundamental improvement. But how often do traders impulsively do the right thing?